Thursday, June 15, 2006

The Minimum Wage

The House Appropriations committee voted to hike the minimum wage to $7.25/hour. This is a truly excellent thing. The minimum wage has been $5.15/hour for a decade, and is currently at its lowest purchasing value in decades. It's a shame that a jurisdictional fight is likely to get the measure stripped out before the bill comes to the floor.

1. It is really a tax grab by the government, since higher wages just mean more tax revenue for the government.

2. The move would cause wage inflation at all levels, and will end up increasing inflation throughout the economy. Minimum wage workers will end up right where they are now, only with less take home pay (see reason 1).

This reminds me of a story. My great-grandmother didn't want to put her money in the bank. If she put money in the bank, she'd earn interest, and if she earned interest, she'd have to pay taxes. At some point, people pointed out that even if she had to pay taxes, she'd still be making money and it was better to make some money and pay some in taxes than not to make money in the first place.

And inflation is about more than just wage growth. As Brad DeLong points out, wages have fallen relative to inflation, so raising wages would really, really help people. If rising wages are associated with rising productivity (and productivity has been rising in recent years), then there won't be inflation. And phasing in a rise wages at the bottom of the wage scale doesn't mean a huge change in the total wages, nor in prices.

If this is the most brilliant argument to be made against raising the minimum wage, then let's just move forward.